If you’re in a partnership business (regardless of the legal structure) you definitely need some life insurance. In all likelihood each shareholder brings a unique skill set to your business; it’s probably the fibre that brought you all together in the first instance. Together your skills complement each other and provide all the necessary tools to run a successful business. In the ordinary course of events, if one partner should die the likelihood is you’re about to inherit by default a new business partner. One which is very unlikely to have the same skill set as your last, a business partner whom now owns shares in your business, where in all probability they would have preferred the cash.
A simple buy-sell agreement in the event of a business partner’s death or disability will allow one partner to buy out the other partner(s) in the case of death or terminal illness. Each partner simply buys a policy on each of the other partners. In the event a partner dies, the other partners have the money to purchase that portion of the business and pay the deceased family or beneficiaries.
Sounds simple and obvious enough, so why are business owners so under-insured in this space given the low cost of protection insurance?
- In many circumstances there can be a large age difference between partners. This is often the case in technology related industries; technological expertise comes from the younger partner, and the finance from the older partner. Here the challenge is to get the same cover in place where lives insured may be very different by way of health and age and hence the cost of the policies will be very different.
- When you start out, it’s difficult to put a future value on the share capital of the business in 5 or 10 years-time.
- Some-times money does not solve the problem. Acquiring the business partner’s shares, does not solve the problem of acquiring their skill set or intellectual property.
Like all life insurance products, if you can’t afford what you’re likely to need, having some protection is better than none at all!